MR. CHAIRMAN: I would like to bring this meeting to order and I would like to begin by thanking the committee members for co-operating. When this committee received the request from the Public Accounts Committee, I guess as a consequence of a request that was put forward by the Liberal caucus, it was referred to this committee. As you know, on short notice we, at least Darlene's office, our very capable clerk, canvassed all members and it was agreed to at least request Aliant Telecom/MTT to come in before the committee this morning.
Committee members, we have with us this morning Mr. Michael Howard. He's a senior advisor with the firm and responsible for, or at least works with, government relations, and I would ask the committee members around the table to identify themselves. Perhaps we could start with Mr. Epstein.
[The committee members introduced themselves.]
MR. MICHAEL HOWARD: A little bit of an auspicious beginning. It is tough when a high tech company comes in and we can't get the technology to function properly. So I apologize for that. In the interim we are going to get paper copies of the presentation that I was going to walk through this morning and have it distributed throughout the room and they are at your disposal to take away. If there are any follow-up questions that have to come from that, feel free to follow up with myself. Also, I am expressing a bit of an apology. Harry Connors is also going to be joining us, but he is running a little bit late. He was doing some of the tours with some of our investment community. Harry is our Vice-President of Communications and Public Affairs for Aliant and he should be joining us shortly.
By way of introduction, my name again is Michael Howard. I'm the Senior Advisor with Government Relations. I have met most of you on different occasions in the past for Aliant. I have been with MTT and now Aliant for 12 years, predominantly in the sales side of the house, but most recently in the capacity of government relations and that's been about a two year tour of duty.
My responsibilities include government relations for all of the Aliant family, which, of course, is beyond just the four telephone companies in the region. It includes all of our interests in the IT sector in wireless, satellite and emerging services. So that's a bit of background on who I am. I have also worked on a secondment basis with the Province of Nova Scotia with a previous entity known as Connections Nova Scotia which was the call centre attraction side of the house. So I have been pretty intimately involved with the province in my current capacity and in past functions as well.
Just as a bit of a preamble before the presentations join us as well, we understand we've been taking a fair amount of knocks and some of that is of our own volition, obviously, and the attempt this morning is to provide a little bit of clarity in terms of where we're coming from with some of our recent changes and announcements. So before it arrives, what we are going to be talking about this morning is providing a little bit of an overview of Aliant's value to the economy which would be a direct mandate or a direct scope of this committee, our recent submissions to the CRTC because that's what has resulted in us being here today and also a bit of an overview in terms of economic value-add and some of the public policy recommendations that we would like to see the governments pursue in terms of a public policy agenda in the whole information and communications technology sector.
So first of all, I don't know what the status is on the presentation material. Is that coming shortly?
MR. CHAIRMAN: I don't believe we've received the material, members, no. Darlene perhaps went out to check on that.
MR. HOWARD: I'll talk briefly, and it will be a little bit out of sequence - I will be doing this from my head, if you don't mind - about the Aliant story. When we're out there and we're talking about Aliant, there's a fair amount of confusion with the brand itself and with the company identity. One of the things that we wanted to spend a little bit of time on this morning was just clarifying what the Aliant family is and what we're all about. There are basically four lines of business that we are currently involved in and I wanted to spend a little bit of time walking through that first of all just so there's a better understanding.
First of all, we're the third-largest incumbent telecom company in Canada, and I'm on Page 3 of the handout that's going out now, the third largest Canadian-owned IT company in Canada and that would be our company called xwave. We are the largest mobile satellite communications company in Canada and that is through our 60 per cent interest in Stratos
Global Communications, which is our satellite and wireless remote company. We have a significant role in commercially-based R & D type development in Atlantic Canada and some of those examples are the living lab that we have, and Innovatia, which is a start-up company we have started which engages in e-learning and e-business type applications. Also we're quite heavily involved with TARA here in Halifax that is basically providing a research and development capability in telecommunications.
It blurred in coming out in black and white, but bear with me. The lines of business are broken down into the four categories. What I'll do is I'll make sure an electronic copy of the presentation gets out to all of you folks through Darlene so you can have that on your file as well, but it is basically the four telephone companies that currently make up about 80 per cent of our revenues in Aliant as a whole. We have emerging business that I talked a little bit about which is our Innovatia arm and some of our other areas. For instance, we are owners of an Internet company in New England called Prexar at the current time. Also our remote satellite, or wireless company, called Stratos and finally our information technology company, which is xwave. From a previous life, you may recall, it is a combination of xwave from Newfoundland and also MITI which was an entity in New Brunswick that we had purchased as well and they have come together to form xwave. Part of that mix as well was the acquisition of Software Kinetics, which is a company that had a fair amount of activity going on in Ontario and the Maritimes as well.
The next is a quick breakdown or slide in terms of our deployment of employees. I won't spend a whole lot of time on this slide, but we can certainly delve into it in a question and answer session. One thing of note, it does include the changes that were made with the xwave and the Innovatia announcements and we can get into those. I know there's a lot of sensitivity around numbers and I don't mean to belittle that, but this would not include the changes that were announced with respect to the 140 telecommunications employees.
Aliant's role in Atlantic Canada basically can break down into a number of different areas. First of all, it is people. We employ over 9,500 people in Atlantic Canada and there's approximately 4,000 retirees in the four provinces. Our employees live and work in over 500 communities throughout the Atlantic Region and our total payroll is about $429 million.
Investment. In our capital program in 2001 we spent approximately $438 million on new infrastructure and capital improvements within our organization to make us hopefully run more efficiently. Those would be things like cell towers, digital cellular, the rollout of broadband technologies and investment in our transport or our physical plant. Major expansion information technology services such as broadband and high-speed Internet and, of course, you recently have seen that we're entering into the digital television business with our iMagic TV solution. That has been launched in Halifax. We've also launched it in St. John and Moncton, and as of this morning we've announced that it has been rolled out to the other side of the harbour in Dartmouth and there will be continuous progressions rolled out of that service.
Business and economic development. I think you're all aware of our interests and involvement in the call centre sector and there's another slide on that further on in the presentation. A significant investment in e-learning, e-government business services, our living lab and our research and development investments, wireless R & D program through the Canadian Centre for Marine Communications. We've also started off a heavy involvement in the export side of the house. We've got what's called Aliant Energy Services. What we've done is we've built the capability to go after the oil and gas sector in Atlantic Canada, but we have interests in the Gulf of Mexico as well and we're looking over at Aberdeen, Scotland for additional opportunities in the oil and gas sector.
Consulting services. We have recently secured contracts with Bermuda Telephone. We have done engagements in New York and engagements in Germany through our consulting arm. Basically that is taking our engineers and our technical resources and shipping them out around the world and providing consulting services on an export basis. Of course, xwave is involved in geographies across North America. They have opened up offices in Dublin, Ireland. Innovatia has offices again throughout North America and is exploring opportunities in the United Kingdom and, of course, I did highlight a reference to the fact that through Prexar Communications we are owner of an Internet service provider in New England and it's basically based in Connecticut and Maine.
Social development. Last year we spent about $4 million in terms of sponsorships, community events and those types of things, the goodwill-type investments. Also of significant note is our pioneer program. We have recycled about 20,000 computers and redeployed those back into schools through our Pioneer program. There is also a strong focus within Aliant on volunteerism. It is important for us, and if you've seen any of our volunteers, they're usually dressed in the loud t-shirts at any of our events. You see them at the events like Tall Ships and the Mooseheads and all of those types of activities out there.
Impact on the Atlantic Region. I will bear down and speak specifically about Nova Scotia shortly, but it is important as we're now an Atlantic-based company that we can take an Atlantic perspective. Keeping skills at home - we are a significant employer of high tech skills and we continue to have strong relationships with, of course, DalTech and some of the other technical schools in the region in terms of hiring their graduates. Support for small and medium-sized businesses: Aliant purchases about $250 million in goods and services from Atlantic companies. Business activities in Atlantic Canada generate about $70 million in goods and services tax. Aliant Inc., the total company, pays about $186 million in corporate taxes annually. Aliant Telecom also contributes about $28 million through its exchange revenue or utility taxes to the municipalities annually. Employment generates more than $120 million in income taxes.
The next page is a quick breakdown of Aliant Telecom's value-add in Nova Scotia. MTT is roughly 3 per cent of Nova Scotia's gross domestic product. MTT contributes, and this varies year by year obviously, between 14 per cent and 16 per cent of the corporate taxes
in the province. MTT is the second-largest private sector employer with employees contributing about $350 million per year in economic value distributed throughout Nova Scotia and, again, we mentioned the charitable contributions. That piece in Nova Scotia represents about $2 million. We are a growth organization despite, of course, our recent announcements. We are a growth company very much focused on growth and diversifying our organization and that has been acknowledged publicly by folks such as NovaKnowledge and AIMS and some of the other think-tanks in the region that have truly seen Aliant as a cornerstone, from an economic development perspective, in the whole ICT sector.
A couple of milestones that should be noticed, we do have broadband connectivity to 100 per cent of schools. This project is almost near completion. We have museums and libraries. That's about 420 sites. Interesting, Alberta SuperNet, which was announced about a year ago, they talked about a $400 million investment, when that spend is complete, they will get where we are currently in terms of connectivity to the schools. Nova Scotia is ahead of the game in terms of that type of connectivity.
[9:15 a.m.]
We've also built what's called a rural university network, and that is in conjunction with the federal government and provincial governments in terms of - Harry, thank you for joining us. Ladies and gentlemen, this is Harry Connors, our Vice-President of Communications and Public Affairs. The rural university network basically provides broadband access for the universities that are not based here in metro Halifax. It's for the University College of Cape Breton, St. Francis Xavier University and also for Acadia University. There is also, of course, broadband connectivity for the Nova Scotia Community College and the Collège de l'Acadie; having an infrastructure on which they can build and grow.
We also have in Nova Scotia the regional children's Telehealth Network and that, of course, provides connectivity into some of the other provinces. We do have the Telehealth, continuing medical education and remote medicine infrastructure that is in place, and we have connectivity for all hospitals, health boards with hosted e-mail and web applications available to the health sector.
Active in economic development, Aliant job creation we talked about. World-class telecom infrastructure, this was vetted and tested by KPMG and Yorkton Securities about a year ago in terms of our capabilities, that we can truly claim to be a world-class infrastructure in the Province of Nova Scotia. This infrastructure equates to about a $2 billion investment in our province. We've also, as I talked about, gone down the road of a broadband infrastructure investment throughout 2000-01, and that will continue.
It should be noted about the indirect job creation . If you look at folks like DownEast Mobility here in Nova Scotia, they also employ over 300 people and that is a direct result of our forays into the wireless cellular business. That type of indirect job creation is also connected to our activities here in Nova Scotia.
The CAP program and Smart Communities, I want to just go over those quickly. I mentioned earlier our interest in the call centre. What this slide is basically is a breakdown of the call centres, and I would point out the bullet at the bottom of this graph does not include the EDS Port Hawkesbury centre, the Stream call centre in Glace Bay and the Register.com centre in Yarmouth, but it does provide a bit of breakdown in term of the call centres in which Aliant MTT was either directly or indirectly involved in the past. I know there's varying degrees of support for the call centre sector, but in our mind they do represent good jobs and good opportunities and also they do represent quick hits in regions that do require some economic impetus, so we are supportive of it and, obviously, there is self interest in there as well because call centres typically generate a fair amount of telecommunications business, so we are interested in that industry growing as well.
A quick overview of where we are today. I want to talk a little bit about the competitive landscape and I won't dwell a whole lot on this slide, but there is competition out there and it's fairly intense in some areas and not as intense in others, but growing. Certainly in the wireless business, the long distance business, it's fiercely competitive and I think you can all attest to that because of the declining rates that we've seen in all of those services. The high speed service is a mixture of infrastructure providers and Internet service providers, but it is intense in that area as well in certain geographies. Where there is obviously less competition would be in the local area, and when I say less, it would be in rural and remote areas predominately. As the incumbent, we tend to be the dominant carrier in those areas, but we do see growing competition in some of our major centres; in our capitals, obviously, and some of our major centres across the region. Those local competitors would be AT&T Canada; Eastlink; and Group Telecom, formerly Cable Atlantic of Newfoundland.
We are at a key juncture in our company's history. There is significant competition, as I have said. Our concentration of our customers tends to be geographically centred as well. Fifty per cent of our customer base tends to be around our major cities. Bundling continues to be a competitive strategy, competitors are closing the value differentiation gap. Basically, our competitors are catching up in terms of the services that they're able to provide. The barriers to entry have come down significantly. We do have strength in traditional telephone, but we're trying to evolve as an entity and that does require significant calls for cash and for investment as we try to evolve into a new growth company.
Customers are expecting new personalization and the industry is still searching for the right business model for the Internet. Tremendous amount of capital is being expended in the Internet area to try to find the right way to make profitable returns.
Company financials, we talked a little bit about that as well, and we are facing significant challenges in that area. Innovation is required to deal with rapid change. I think that's obvious. The technology is enabling businesses to reduce costs and augment serving customers with electronic channels and personalization. But that technology does require ongoing and continuous investment which puts tremendous strains on our capital requirements.
The last bullet is the regulatory change and we've spent a fair amount of time talking about that because that I guess is the primary purpose for us being here: our rating submission to the CRTC.
Recent Aliant changes. There's been much speculation and discussion about the clarity of the messages that did come out so what we wanted to do was take an opportunity to walk through some of those changes and their announcements. Innovatia and xwave is about 200 people. It should be noted that the majority of those employment numbers is outside of our region and certainly very minimal within Nova Scotia. Xwave is less than five within Nova Scotia.
Stratos - the 70 people who were mostly in Ontario and in the United States. By no means do I want this to be a cold display of numbers. We are sensitive that each of these numbers is an actual former employee of ours. We are sensitive to that fact and we have tried to go through a process of making sure that that is dealt with in an appropriate manner.
Aliant Telecom, which was 140 people : part-time, temporary employees were 60 and projected in 2002 as an additional 300. Our CEO, Stephen Wetmore, has gone on record to say that will be predominantly in the telecom area in that line of business.
Harry will certainly be available to talk more about the last two bullets if any questions should arise. We have also discussed strengthening ties between Aliant Telecom and Bell Canada, for obvious reasons, in terms of efficiencies and shared resources. Also we've had some senior management changes within Aliant. Gerry Pond, the President of Aliant Telecom, is moving on and there will be a new person in that role.
Now I want to move on to the local rating submission. Mr. Chairman, just a time check to make sure that we're still okay.
MR. CHAIRMAN: Yes, Mr. Howard, you have approximately 10 minutes.
MR. HOWARD: Okay, great. Setting the record straight, there were a number of things in terms of making sure the appropriate messages did get out there and we take this opportunity to try to re-clarify some of those as well.
Aliant's proposal is directional. It's not a rate application. We've been asked to provide inputs to a national process and that's what we've been doing in terms of providing information. This is a complex hearing covering the framework for competition in local service, including the rates to be applied and how subsidies are to be addressed, among other items. The pricing model must continue investment in rural areas by the private sector. In our minds, that is the biggest issue of this whole review process. At the end of the day, through this process, there has to be a model that enables ongoing investment in rural Canada and that's what the CRTC has been tasked with doing and that's what our submission is all about.
There is competition in Atlantic Canada with competitors focused on the more attractive investment areas, the larger centres. Differentiated rates are not new and are inevitable in a competitive environment. This is not only specific to telecommunications, it covers all areas of business. We see this in gas, food, housing, you name it. Competitive pricing is a fact of life and differentiated pricing between urban and rural is a fact of life in competitive marketplaces.
Regulatory overview. This is just a bit of background or context. Some of this may not be new because some of the folks in the room took advantage of an offer that we had put out there through the various caucuses to provide this overview before, so to those folks I apologize if I am being repetitive.
Government of the day made public policy decisions to open up telecommunications to competition and knew that LD rates were artificially high and local rates were artificially low. Regulatory policies were designed to rebalance over time. The LD rates have fallen by over 60 per cent as a result of competition. Local rates have risen more slowly, but are still below the cost of providing service. All local services are subject to tax at the federal and provincial level, including 911 service.
With our regulatory environment, we are still a regulated company. Certain areas of our business are still regulated while others are wide open for competition. But there are constraints on incumbents. We've had to provide our network to competitors at discounted rates. The latest proposal, as submitted by our competitors, asked for a 70 per cent discount.
We are price regulated. We cannot price below our actual costs. We cannot engage in predatory pricing; other industries do have that flexibility. That's designed predominantly to stimulate competition. We are required to serve all customers. That is mandated by our CRTC.
Highlights of our proposal - it is part of a national process. There was a lot of discussion around should there be regional hearings? Aliant has been on record as saying that we would not be opposed to regional hearings, by any means, but this was a national process and the head office for the CRTC is in Hull. All of the industry players, both incumbents and competitors, were asked to make submissions and it's the CRTC's decision as to where those
hearings are held. Certainly if there are rate increase applications that are to follow, they typically do have regional presentations at that time. But it is, as I said, part of a national process and we are adhering to that process.
Our proposal is a framework for rate changes over the next four years; it is not a one-year hit. We did realize that there are going to be impacts for our rural customers should our rate increases be approved in subsequent applications, so we chose to stagger that adjustment over a four year period. Actual rate changes would require a specific application to the CRTC. A little bit of some of the subsidies that are at play here: there is a cross-subsidy mechanism, basically it was initially designed to create a provincial or regional pool; and revenues from long distance to subsidize the cost of local service, long distance carriers paid a fixed rate per minute of long distance into each pool. In 2001, the cross-subsidy is determined on most telecom services, not just long distance, at a rate of 4.5 per cent and the national pool will now replace the previous provincial or regional pools.
The CRTC introduced new bands or high-cost areas, which is obviously the place of most contention. In 2001, the rate falls from 4.5 per cent to 1.5 per cent, so that pool of money for reinvestment in local service is declining. In 2000, $66 million in cost subsidy no longer is available to Aliant to subsidize that local service in the rural and remote areas. In 2002, Aliant expects to pay $20 million into the pool and anticipates receiving $20 million back in subsidy from this arrangement, or a net benefit of zero, so there is no longer a pool to reinvest in local service in rural and remote areas.
The big question is will the profit from the low-cost areas or the big urban areas cover the losses that are incurred in the high cost areas. Well, there are problems with that philosophy because we know that our competition will continue to cherry-pick and focus on the larger centres. We predict, and it is obvious that it is happening now, rates will drop in the cities and towns and in communities in the lower-cost areas in response to the competitive pressures. Contribution is expected to be reduced annually by the CRTC and eventually eliminated.
What about the high-cost areas? To encourage competition in higher-cost areas, the CRTC is providing a subsidy from the cross-subsidy pool. This subsidy is based on the CRTC assigned cost minus Aliant's price in higher-cost areas. This leads to possible cherry-picking within high-cost areas. So I will give you an example. If you look at the County of Pictou, our competitors can go into the Town of Pictou and receive a subsidy to service that town and not necessarily serve the high-cost areas of the rest of the County of Pictou, where we would be obligated to continue to provide service to the higher-cost area in the greater geography in the County of Pictou. So our competitors can cherry-pick and receive a subsidy to do that.
The typical high-cost area, most high-cost areas take in a broad geographic area, but most customers are centered in the one town, and that is the Pictou example. Competitors can service the town and ignore the outlying areas and this model will not sustain continued investment by the private sector in rural and remote areas. So what are the long-term consequences of this process? There will be increased competition in the cities and towns and the rates will drop in response. Aliant will be left with the high-cost portion of the region. So what we will have is the region will have two carriers, one of which is not prepared to invest in the entire area and one of which cannot afford to invest in the entire area and that is the dilemma faced by the telecommunications carriers and it is the dilemma also being faced by the CRTC in terms of how do you, on the one hand, stimulate competition while on the other hand make sure that there is still a model that encourages investment in rural Canada.
What is happening in other regions? This is just a quick view of what is happening out there in other geographies. As you can see, the Atlantic Canada submission, after a four year period of time, will have us to a rate of $29.95 per month, which is in line with most of the other territories. A couple that I would like to point out are Alberta and B.C. they have chosen to do a significantly higher jump in their submission. Also, Saskatchewan is a Crown Corporation, Sasktel. So of course there are obviously some other subsidies at play within that organization that could well enable the ability to keep it at a lower rate. Also of note, the non-incumbent carriers, or our competitors, have proposed significantly higher rates than what we have submitted.
So a quick summary of our submission, and I guess the underlying question from a public policy perspective, from an economic development perspective, is will the model, or the eventual model, sustain continued investment by the private sector in rural and remote Canada? There is a requirement for the public and private sector to work together on rural sustainability in the competitive marketplace and we are quite willing to work with government at all levels to try to come up with appropriate models around continued investment and growth in rural and remote areas.
[9:30 a.m.]
The last slide and I really don't think we are going to have enough time to delve into this too much, but these are the areas, if you were to ask Aliant from a government perspective which are the areas that you would like to see government concentrate on from a public policy perspective, these are a quick overview. There is significantly more information behind it if we would like to spend a little bit more time on it at a later time or in a subsequent session. But, basically, skills and literacy are the quality of our labour force and the availability of our labour force is a prime concern for the whole information and communications sector.
Financial stimulation of IT sector. This can range from direct programs for some of the start-up companies to capital gains to tax credits for research and development, continued emphasis in those areas.
Export and import of intellectual property in research and development. From a legislative perspective, there are opportunities to explore legislation around intellectual property and to make sure that that becomes commercially viable. Also, government is a model user. There are tremendous opportunities for all levels of government to embrace and leverage the use of information and telecommunications technologies to deliver services. As a significant consumer of those services, you can be a catalyst for the growth of that industry in the region.
Enabling infrastructure. Without a doubt, this is a requirement, whether it be wireless or wire line, the wires on the pole. But infrastructure, the telecommunications networks are the highways, the railways, the ports of the new era. So it is important that enabling infrastructure continue to receive investment. From our perspective, it is a model that would have governments act as anchor tenants and look at models in the public policy front to look at investment in rural and remote areas, very similar to the work done by the National Broadband Task Force. There are also opportunities on Atlantic synergies in focus across sectors, having the governments work together on an Atlantic basis.
So on the signal from the chairman, we will wrap up the presentation portion of this discussion and open the floor for your questions.
MR. CHAIRMAN: Thank you, Mr. Howard. Committee members, we are also joined, as Mr. Howard indicated, by Mr. Harry Connors, Vice-President, Communications and Public Affairs. We understand, Mr. Connors, you had some difficulty getting over here this morning.
MR. HARRY CONNORS: We were delayed out of Saint John, Mr. Chairman, so I do apologize to the committee and to yourself for being delayed this morning, but thank you very much for receiving us.
MR. CHAIRMAN: Mr. Downe will begin with questions. I would perhaps, just before we begin, ask all honourable members to, I guess in the spirit of co-operation, try to be conscious of all members wishing to ask questions.
MR. DONALD DOWNE: Thank you, Mr. Chairman, and welcome this morning to you both. My question is in regard to the rates. We are talking about proposed rates in certain areas of the Province of Nova Scotia. My first question is, in your proposal to CRTC, is there any ability to be able to index based on some formula within that rate increase in rural Nova Scotia?
MR. HOWARD: What we have put forward in terms of the submission is we have been asked to provide a means of covering costs. The CRTC has identified and defined what our costs are in different areas. It has defined different bands of cost in those areas. The model that it is going forward with is that we will not be able to price our services below the cost as defined by the CRTC. So we were basically asked to submit a pricing model which allows for recovery of those costs in those areas.
MR. DOWNE: So I take it that the answer is that there is an indexation built into the price. We are talking about the price increase in the Atlantic Region of $29.95 per month as of 2005. The question is, again, is there an indexation built into that price? For example, if there is a 3 per cent inflationary factor, would you be able to automatically increase the rate by 3 per cent because of CPI?
MR. HOWARD: We have asked for an inflation index in our low-cost serving areas and clarification of high costs will be the same.
MR. CONNORS: We have indicated an inflation index in there, but of course it has not been approved by the CRTC, so currently it does not exist . . .
MR. DOWNE: If it is approved by the CRTC will it be only in rural areas or will it be throughout all of Nova Scotia?
MR. CONNORS: It would be throughout all of Nova Scotia but, again, any rate application requires a separate and independent application which would require a hearing to take place at that time. The CRTC would presumably look at all factors affecting the company at that time. These are in the proposals; I just want to be clear about that. As Mike indicated in our presentation, this is directional, not a specific application as such.
MR. DOWNE: Yes, I understand that. But if the CRTC rules in favour of this directional proposal, theoretically rate increases could go up not only in rural Nova Scotia but they could go up in Halifax or in other areas as well.
MR. CONNORS: It's doubtful given the likelihood of where competition would take place.
MR. DOWNE: Well, based on inflation . . .
MR. CONNORS: Based on inflation. Yes, you will have to look at where the costs are. The intention, of course, Mr. Downe, overall, is to get prices closer to cost wherever you can, recognizing the competitive model that's coming into this marketplace. The analysis done was a six year study by the CRTC that included all players, competitors and incumbents, so everybody participated in it. The CRTC, based on that study, did evaluate and posited certain
areas at a certain level of cost and other areas at another level of cost. We were asked to file based on that perspective.
MR. DOWNE: Given the first year, one of the concerns we had, obviously, is that the areas that have been chosen for the rate increases happen to be areas, as I understand - and correct me if I'm wrong, I would appreciate it if you would - that principally do not have competition currently. Is that accurate?
MR. CONNORS: Well, I think that what has happened in this whole process, as I indicated is that the CRTC undertook what was called a Phase I, Phase II, Phase III Costing Study, a very detailed economic analysis, looked at all the factors contributing to the cost of service delivery and broke down the cost of service delivery according to the region in which these services were being delivered. In some areas it would cost less to deliver service than in other areas; in some areas it would be a very high cost to deliver service, relative to the mean, as it were.
The proposals that are filed are based on that evaluation and that commonly accepted view. There are differences of opinion, no question. We still believe that in certain areas the cost of service delivery is higher than that which has been posited by the study, but nonetheless the proposals are based on that. It's not a question of Aliant selecting out certain areas for a higher cost or a higher price, if you will, it's really the reality of the study that said, here's the bands of costing, you can't deliver service below cost, therefore tell us what this new world is going to look like based on this set of costs that have been posited. We are not picking out . . .
MR. DOWNE: Without the ability to cross-band, cross-subsidize the area - for example, Bridgewater is with Eastlink and its ability is one thing, outside Bridgewater would be another rate. I guess my question is, if that is the way it's going to be established, and if 3 per cent - say the indexation proposal that is built in there besides the rate increase is based on CPI - and those rates go up, those individuals who live outside the lower-cost zones or the areas that have competition, those individual areas will be hit with a consumer price index increase as well as the costs associated with doing business because they live in an area that is a high-cost zone, is that accurate?
MR. HOWARD: I think your question also points to the dilemma faced by the CRTC and by the whole telecommunications industry in Canada. The CRTC has challenged us to make sure that we don't price our services below cost, but on the other front the question that is out there is why is there not local competition in very rural and remote areas? Obviously it's a case that there is not a business case, an opportunity for our competitors to move into those areas. What can be done to address that challenge and to encourage investment and competition in rural areas which, hopefully, downstream will lead to a decline in pricing once competition is in place.
MR. DOWNE: Mr. Chairman, a final question. Given the fact that 40 per cent or 45 per cent of Nova Scotians live in rural Nova Scotia and there is a large percentage of Nova Scotians, about 15 per cent to 20 per cent, who live at around the $8,000 to $10,000 income in households, and invariably those would be in the rural areas that these rates would be affecting. Based on a 3 per cent inflationary factor on top of the increased costs that is part of the formula that you're applying for, what dollar increase amount would that mean to an individual and what does that mean to Aliant financially?
MR. CONNORS: I think we would probably have to do some further analysis to say what it would mean to Aliant financially, and to individual customers. I think the principle at hand here is that Aliant and none of the incumbents can price below cost. I mean if you price below cost, your potential competitors will be disadvantaged in going into an area. So it really recognizes the principle of trying to recognize how costs are rising.
MR. DOWNE: But that same increase will go into effect in Halifax as well, if it's based on the consumer price index, CPI, NSCPI is at 3 per cent, Halifax will take a 3 per cent increase cost as well if that proposal goes forward?
MR. HOWARD: We would respond in a market force-driven economy, so if the prices that our competitors . . .
MR. DOWNE: The ability is there for you to do that if that proposal that you've brought forward to CRTC is accepted?
MR. HOWARD: Upon a subsequent review or filing of a rate application. Remember, again just to reiterate, what we've been asked to do is provide a direction paper basically in terms of where we would like to see this whole area go, and that's what we've done. If we do choose to go down the road of a rate increase, it will require an application and an application process all over again, and that's what we'll be tasked to do.
MR. DOWNE: Thank you, Mr. Chairman. I know my colleagues would like to ask some questions.
MR. CHAIRMAN: Perhaps I could direct a question to Mr. Connors if it is appropriate. I'm certainly perplexed that Aliant Telecom supports a rate differential and, in fact, a rate increase that would be borne by rural Nova Scotia. In fact, I think there's some 130 exchanges, according to The Chronicle-Herald, that could be affected, probably more, right from Advocate to Woods Harbour. I'm just wondering if you're aware of the fact that service in rural Nova Scotia is not as good as it is in urban Nova Scotia, and I say that with some factual information. Back in December last, I know a family in rural Nova Scotia who went 10 days over Christmas, in December, without phone service. I know a business in Stewiacke that went three days without service this year and, there's certainly a differential in service, and I'm just wondering what consideration the corporation gave to that fact?
MR. CONNORS: The consideration that the company would give, Mr. Chairman, is that we recognize that there needs to be continued investment in the telecommunications network in order to maintain service standards, and we're the only one of the organizations, the incumbents that have submitted service standards and willingness to submit to service standards, so that is something that the competitors have not chosen to do at this stage. So we do recognize the need for high-quality service throughout the region and we recognize the need for high-quality investment throughout the region. The model that we're putting forward attempts to enable us to sustain investment throughout our operating territory to all areas and not just in some areas while ignoring others, so that the service issues, the particular service issues that you cite - they are certainly regrettable and I would like to know a little more about them from you personally - I think I would say that our interest is in sustaining the network such that these service interruptions don't take place in any area of our operating territory. There needs to be a model that sustains investment in rural Nova Scotia, just as there would be investment by the natural dent of the populations and the opportunity in the competitive marketplace in the urban areas.
MR. CHAIRMAN: I guess my view is that if there was a service interruption in Halifax, the city proper, God love them, that they wouldn't have to wait up to 10 days to have that service repaired. I was provided with some petitions here, Mr. Connors and Mr. Howard, from residents in Brookfield, Stewiacke and Middle Musquodoboit. I will certainly provide you with copies of those petitions and, without question, there seems to be very widespread opposition in rural Nova Scotia to your rural rate increase that's before the CRTC. I would like to think that while this is a little bit like closing the door after the cow has already gone out of the barn, the fact of the matter is that we would have liked to, I think all members would have liked to have had an opportunity to hear this presentation previous to you, or those appropriate in your company, going to Hull to make your presentation to CRTC. We don't think it is fair. The government doesn't think it is fair. I understand the Opposition Parties don't think it is fair. Rural Nova Scotia doesn't think it is acceptable, and I think with a good deal of justification.
[9:45 a.m.]
My final question would be, I guess at this point, is it true that because competition in rural Nova Scotia is almost nil to non-existent, Aliant Telecom feels that it would be easier to make an application to raise rates there because of the lack of competition that would be in the urban areas?
MR. CONNORS: No, I think I would have to reject the inference that one would take from that remark, that we are somehow looking to take advantage of customers. That is not our approach to customers at all. Our interest is twofold. Number one was participating in the national process that is looking to establish a national framework. As I indicated, the costing study did take place over some period of time and all the players in the industry were
participants in that. We ourselves were very active in encouraging all administrations throughout Atlantic Canada to be active participants in this process.
I know myself, I am originally from Newfoundland and I know my colleagues in New Brunswick and Nova Scotia and P.E.I. were quite active in encouraging everybody to take an active role in these hearings. We saw these as national hearings and we thought it was appropriate that the Atlantic Provinces and each administration be active players in those hearings. So, again, we were active in that regard. I do take your invitation. I think it would be a good thing if we established a regular relationship between ourselves and the work of committees such as this so that there is greater understanding of what we are trying to accomplish.
I think the final point that I would make is really to look at this question of sustainable investment. Our interest is not in trying to select out some customers for a price hike while leaving other customers alone. Our interest is being able to operate in a competitive marketplace. Our interest is being able to sustain investment in areas where the cost of that investment is pretty substantial and achieving a return on that investment, and our interest is in competing fairly. We don't wish to price services below cost any more than the regulator wishes us to price services below cost.
The industry was born in a particular framework in Canada and the United States which is perhaps different than some other areas of the world. What we sought in Canada and the United States was to have universal service. In order to do that, we established a telecommunications system using a series of subsidies: urban to rural, business to residential, long distance to local service. That is the way the business was built. That is the way the network was built. In 1992, the government of the day, as Mike indicated, made a policy decision that we should have competition in telecommunication services and they lifted one side of the box, if you will, which was the long distance subsidy. Over that period of time, we have seen the erosion of that subsidy. In a free marketplace, you have to remove all subsidies in order for businesses to compete effectively with each other. So what we are seeing now is the outcome of that very long process which has taken place over the last decade to try to establish a fully competitive model in Canada.
We would agree with you. Atlantic Canada and the Government of Nova Scotia and the political Parties in Nova Scotia should take a very active interest in national policy as it affects this region. It may be that a model that works well for urban areas of Canada, the very large urban centres of Canada, may have unintended impacts on rural areas of Canada such as Nova Scotia. But nonetheless I think that it is important for all of us to abide within the framework and to try to make this model work as best we can.
MR. CHAIRMAN: Well, Mr. Connors, I appreciate your discourse, but I haven't heard anything that would give me confidence that service in rural Nova Scotia will be improving. A number of these petitioners and a number of rural Nova Scotians are seniors.
A good percentage of them are on a fixed income and, quite frankly, they feel you are dialing up the wrong number on this one.
MR. CONNORS: As I indicated, our interest is in sustaining investment for all customers, be they seniors, be they young urbans, be they rural Atlantic Canadians. That's our interest, sustaining investment in the network and keeping services of a very high quality. As part and parcel of this proposal, we have submitted ourselves to service standards that we are answerable for to the commission in order to ensure that service is maintained, it's high quality and it's effective. Do you want to add anything to that, Mike?
MR. HOWARD: No.
MR. FRANK CHIPMAN: Welcome, gentlemen. I watched with interest your share value in the last few months and it's gone down approximately 30 per cent since last February/March. Of course, that may have some reflection on our RRSP season, but I notice your gross revenue is up and your net profit is down. Can you tell me the reason for that?
MR. CONNORS: Well, there are a number of factors that contribute to that. One is the requirement that we have to sustain investment in networks and services that are still seeking a profitable model. I think that you're seeing that Aliant has invested very significantly in extending broadband services throughout the region, so that's a contributing factor. I think the biggest factor overall is the overall decline in the financial market in the telecom sector, in the technology sector. We're facing a number of issues right now - the stability of the equipment pipeline that provides the infrastructure, if you will, that is placed in our network. Those have been challenging. I think ensuring that we maintain service delivery of a very high standard has been a factor. So I think there's been a number of contributing factors.
MR. CHIPMAN: I notice the larger percentage of your layoffs have been in the high tech like Innovatia and xwave and Stratos Global in the lower Aliant Telecom. Is that because you're suffering your greatest losses through the high tech?
MR. CONNORS: Well, certainly xwave in the Ottawa marketplace has been impacted by the very severe downturn in the Ottawa marketplace. Many of the people with xwave and Stratos and Innovatia are people who are brought on to work on contracts, so, for example, with Innovatia we won an e-learning contract with Nortel networks. The contract has certain value over a certain period of time. Naturally, as a consequence of what's happened to Nortel networks, some of that activity has been delayed. So some of these people who were brought on to work specifically on these projects, you have to let them go. They're in what I would call - not seasonal or temporary, but they're not permanent, full-time staff.
Similarly with xwave. Xwave is an organization that in certain marketplaces will rise and fall according to the marketplace, so it's been impacted there. At Stratos, its activities have been impacted internationally by a whole series of events that have been going on
throughout the world. Nonetheless, we are driving ahead as much as we can with our growth plan. We've been trying to be very active in the North Sea and in Atlantic Canada and in the Gulf of Mexico offshore areas to try to drive growth.
One of the interesting things about Stratos is that, while it has gone through these difficulties, it has been operationalizing its business more and more. We have some of our Nova Scotian employees who are very active in the Houston market and in the New Orleans market and helping to drive growth in those areas and bring those skills back to Atlantic Canada.
We've been trying to pursue these agendas at the same time.
MR. CHIPMAN: When you get back to 1992 and the competition was imposed - let's say, for example, your utility poles, infrastructure. Are your competitors allowed to piggyback at no cost?
MR. HOWARD: There is a contribution expected from some of our competitors for some of our poles and infrastructure.
MR. CHIPMAN: What's the percentage? I guess what I am thinking - where is your competition coming from? Central Canada, the U.S.?
MR. CONNORS: It varies. We've got homegrown competitors such as Eastlink here. Cable Atlantic was a Newfoundland organization and now they have been acquired by an Ontario-Montreal based company, Group Telecom. AT&T Canada is subsidized significantly by their brethren to the south, AT&T proper, so it varies.
MR. CHIPMAN: MTT was a wholly owned Maritime company at one time. Your major shareholder is BCE now?
MR. CONNORS: Correct.
MR. CHIPMAN: So you're actually controlled by a central Canadian company.
MR. CONNORS: I would say that we're operated independently. We're an independent management operation. We have a parent company, that's BCE, but we also have a significant minority shareholder base.
MR. CHIPMAN: Back to the infrastructure, though; is it a fair contribution? This was imposed on you. For example, Sprint - I don't know if Sprint is still operating - or some cable company, but those companies actually don't own the infrastructure. You own the infrastructure. But are they giving you a fair return?
MR. HOWARD: There's a brief bulletin - maybe not enough detail in the overview that I have provided, that we are told to provide access to our infrastructure for our competitors. There is a current discount in place for them to do that. Through this process they have also asked for a much greater discount to the CRTC.
MR. CHIPMAN: You don't set the rate? Do you set the rate?
MR. HOWARD: No.
MR. CHIPMAN: The rate is imposed on you. So I guess what I am saying is you provide the infrastructure and somebody else comes along and takes part of your infrastructure and has the use and competes against you without actually contributing to the construction of the infrastructure.
MR. HOWARD: Yes.
MR. CONNORS: We have always been much more in favour of facilities-based competition, where each of the players is required to invest in infrastructure and facilities.
MR. CHIPMAN: Just one final question, Mr. Chairman. I live in rural Nova Scotia and you are saying that other companies would have the opportunity to cherry-pick. Are those other companies forced to provide service in rural Nova Scotia? Are you?
MR. CONNORS: We are the provider of last resort at this stage. We are required, under regulation, to provide service, to be the universal service provider.
MR. CHIPMAN: So your competitors aren't?
MR. CONNORS: No.
MR. CHIPMAN: So if I decide to hang up on Aliant, I really have no option; there is really nobody else to turn to.
MR. CONNORS: Well, the reason that there isn't is that the regulator and the industry itself recognizes that the opportunity for competitive business to come into rural Nova Scotia, or rural Newfoundland or rural New Brunswick is not there in terms of return. That is why you are not getting the competition there.
MR. HOWARD: Also, with changes in technology, we will see competition coming from other areas, i.e., through cable or through wireless technologies, whether they be cellular or whatever.
MR. CHAIRMAN: Thank you, Mr. Chipman.
Mr. Brian Boudreau.
MR. BRIAN BOUDREAU: Thank you, Mr. Chairman. I am certainly looking forward to that competition coming to my area, I know that. I am a rural representative also and this here, I don't like it.
I would like to ask how much profit your company had last year.
MR. CONNORS: About a 17 per cent rate of return. I just wanted to make sure I had the . . .
MR. BOUDREAU: Do you agree that your rural infrastructure sort of goes in hand with the urban infrastructure? Wouldn't you suggest that the rural infrastructure is just as vital, it complements the urban service that you provide?
MR. HOWARD: I think that both levels of service are really essential. We do regard the network as an integrated network; that is why I indicated that our interest was in sustaining investment throughout our network.
I think too, further, just as an example - to get at your question, Mr. Boudreau - we went through a process in 1998 where about 94 per cent of the province had access to digital lines or digital service, digital telecommunications. To close the gap, to get from that percentage to a 100 per cent digital province, to bring us up to one of only two provinces in the whole country, that cost MTT at the time $200 million to close that small gap. It shows the tremendous investment that is required to roll out technologies in very rural and remote areas, and we are going through the exact same challenges as we try to roll out high-speed services and high-speed-internet-type services.
MR. BOUDREAU: The services available in rural Nova Scotia, if you are an urban customer and you are driving in the rural areas, are those services available as an urban customer?
MR. CONNORS: You mean all services provided by - could you be specific, just give an example?
MR. BOUDREAU: Telephone services. If I am an urban customer, if I reside in an urban setting and I drive into a rural area, is my service discontinued?
MR. HOWARD: Are you talking about the wireless services, the cellular services?
MR. BOUDREAU: Yes.
MR. HOWARD: We have gone through deployments on the wireless side of both analog and digital services. Within Nova Scotia, most of the main corridors have access to digital wireless services and we are trying to rapidly get to a significant coverage area on the analog side first, and then on top of that we build out the digital service next. Again, it falls back to the exact same model though before, if there are limited returns on investment for some of that capital infrastructure billed, we have to come up with appropriate models to make sure it is appropriate for us to do those investments in new technologies like digital cell service or high-speed Internet services.
[10:00 a.m.]
MR. BOUDREAU: But does the urban customer have access to that in a rural setting?
MR. HOWARD: An urban customer cannot access digital cellular service in an area that's not covered by digital cellular footprints. They would be able to access an analog service if analog is available.
MR. BOUDREAU: So I am a digital customer of yours.
MR. HOWARD: Yes, I think you are.
MR. BOUDREAU: I am an urban resident. When I come into an urban setting, my digital service is still provided.
MR. HOWARD: Yes.
MR. BOUDREAU: So I would suggest that is vice versa. If I lived in the city and I went into a rural area, that service is still available, is that correct?
MR. CONNORS: I think, as Mike indicated, if you're a customer who has digital service in the urban area through your cellular service and you're operating in a rural environment that has access via an analog network, then your service switches over to the analog technology. That's the way that works.
MR. HOWARD: It has got a lot to do with the access technology, too. Your digital cell phone is designed to service both analog and digital technology, whereas your analog cell phone is designed to just be an analog phone. So when you come into a digital serving area, you would not be able to access the digital network.
MR. BOUDREAU: Could I ask what 17 per cent means in real dollars?
MR. CONNORS: I do apologize, I just didn't come with that information at hand this morning. So I will get that information for you.
MR. HOWARD: Might it be in the briefing documents?
MR. CONNORS: Mike will just search out that information.
MR. HOWARD: Do you just want to carry on with your next question and I will dig it out here.
MR. BOUDREAU: When we discuss subsidies, isn't it true that your company benefitted a great deal from subsidies over the years?
MR. CONNORS: I'd say the customers benefitted a great deal from subsidies over the years because the subsidies were dedicated towards service delivery. You know, the presence or absence of subsidy doesn't actually make an impact on Aliant Telecom's bottom line. Every dollar of subsidy that we would gain transfers over to service delivery.
MR. BOUDREAU: How does that differ from your urban competition?
MR. CONNORS: Well, again, the idea behind the subsidy pool was to be dedicated towards service delivery. That's what it is there for. Aliant Telecom pays into the subsidy pool, and pays a greater portion within our framework into the subsidy pool, and then draws out from the subsidy pool. So the subsidy pool was directed towards supporting the delivery of service. That's what it is directed towards. It recognizes that costs of service delivery in certain aspects of the business are different than costs of service delivery in other aspects of business.
In round numbers, Mr. Boudreau, the number is $217 million.
MR. BOUDREAU: Did I also hear correctly that you're investing in the energy industry?
MR. CONNORS: No, what our objective is through Stratos Global is to be the leading provider of telecom and IT services to the offshore energy sector on a global basis. So I was making reference to the activities with Stratos Global and the fact that we do have employees here from Nova Scotia engaged in developing that marketplace, and that provides us the opportunity to bring those skills back into the Nova Scotia marketplace. That's what I was referring to.
MR. BOUDREAU: Just one more question, Mr. Chairman. When does your company intend to improve the service in rural Nova Scotia?
MR. CONNORS: Our company is constantly working on the service throughout the region. Any particular service issues that you might be aware of, I would be delighted to hear about them and I will bring those to the attention of the folks who are engaged directly in service delivery. But I would say again that Aliant Telecom has submitted itself, as part of this proposal, to some pretty significant service standards that it intends to meet throughout this whole process. I would also stand by our service delivery overall throughout our region. I am pretty familiar with the region and I think that our service stands up very well. I know that from time to time there will be problems, just as there will be problems with any service delivery, but I would say that we will constantly stay customer-focused and we will constantly stay focused on high quality service delivery.
MR. CHAIRMAN: Mr. Epstein.
MR. HOWARD EPSTEIN: On another topic, Mr. Connors, I wonder if you can help me to understand the way in which Aliant has developed over the last two or three years since it was formed. It was, of course, a merger of four entities in the Atlantic Provinces. I'm rather concerned about what seems to be a shift of resources away from our home province here in Nova Scotia, particularly to New Brunswick, and I can't really see in any of the figures that I've been given so far in the materials where this is laid out. It may be that it is somewhere, or it may be that it's not. Just looking at your slide that gives total numbers of employees, at this point Nova Scotia has about 3,300 employees. This was subject, I think we were told, to the most recent adjustments. New Brunswick has approximately an equivalent number, perhaps just slightly more. But as I understand it, about 60 per cent of the business that Aliant does is in Nova Scotia and only about 30 per cent of the business that you do is in New Brunswick.
I have to say that I'm a little concerned about this, particularly when I look at the breakdown of the different companies that you have here. Your merging businesses - although they're small in terms of the number of employees, presumably this is an area that you hope to develop - they're all in New Brunswick. Your ActiMedia, a clear majority of those employees, they're in New Brunswick. Your xwave, again, the bulk of the employees, they're in New Brunswick. Innovatia, the bulk of the employees, they're in New Brunswick. If you look at your headquarters people, which I assume is what Aliant Inc. is, again, approximately the same number of people in New Brunswick as in Nova Scotia, and the information I have from people inside your company is that there's a marked shift away from Nova Scotia into New Brunswick and I'm very concerned about that.
MR. CONNORS: Absolutely not.
MR. EPSTEIN: Then why don't we look at it. Your payroll figures . . .
MR. CONNORS: Let me just go back to your first question.
MR. EPSTEIN: Well, where are the management people, that's what I want to know. Where are the management people? Where are the taxes paid? Both of those things.
MR. CONNORS: Right, yes, no, let's just go back and let me answer your question. Aliant started through the merger of four holding companies that owned assets of varying types throughout the region. The heritage companies were moving in slightly different tracks, but fairly similar so that, for example, in Newfoundland, NewTel, that heritage company had already undertaken the development process to invest outside its core line of business in telecom. So it had in the first instance established an IT company, NewTel Information Solutions, which later became xwave, through a partnership with the Government of Newfoundland and Labrador, the privatization of Newfoundland and Labrador Computer Services and NewTel's IT resources that were in-housed with telecom needs. So we started with 280 people and started that business model there.
Stratos Global was also started as a Newfoundland company. It was first called NewEast Technologies and UltimateEast Technologies. Through investment by the NewTel heritage company, it evolved into Stratos Global. Similarly in New Brunswick, New Brunswick had taken an approach on developing an R and D capacity through investment in new technologies through organizations such as Innovatia and Emerging Business. So what you're seeing is more reflection of where the company started. Now, as you look out over time, what I think we have achieved is that you're starting to see - for example, we have employees related to Stratos Global now in Nova Scotia and I would expect that as the market develops and the inopportunity develops, that employment would grow, although I can't speak on behalf of Stratos. They're an independently-traded organization, but still I would fully expect that, given normal marketplace conditions, that would grow.
Innovtia started as a New Brunswick company. We now have employees with Innovatia who are working in Nova Scotia and in that marketplace. Where Nova Scotia has always been strong and you show the greatest amount of employment is in Aliant Telecom itself, in the telecommunications business. That core business has always been well developed in the Nova Scotia marketplace. So over time as you get these kinds of adjustments going on and you develop new market opportunities, you will see the employment balance back and forth.
The other thing I would say about Aliant, too, is that we started life in May 1999 with 8,600 employees and I believe we retired, through an early retirement program, about 600 or so employees throughout Atlantic Canada and today, we're 10,700 employees, 9,000 to 9,500 of those are located in Atlantic Canada.
Again, when we entered into the merger, there was probably a slightly higher employment base in New Brunswick. There were about 2,600 or so in Nova Scotia and there were about 2,200 to 2,300 in Newfoundland, just to use those examples. What you can see is that employment has actually grown in all three areas and throughout the lines of business. So we have started to undertake fairly significant activity in the Nova Scotia marketplace as a common entity as it were and you're seeing the actual employment numbers grow overall. You're seeing that the business units themselves, as they expand their activities into the other regions where they did not start life, but are expanding into other regions, their employment is growing. So that's my summary explanation of where Aliant started from and how things have evolved.
MR. EPSTEIN: I think the question was where are your management people. The concern is that there's a disproportion that's quite marked between where the revenues are generated and where it is that most of the management decisions are made.
MR. CONNORS: I don't have the figures at hand. We did some analysis of this in response to a question from somebody in Nova Scotia recently, but in the range of about 35 per cent to 37 per cent of our management are located in Nova Scotia and the proportion of management in Nova Scotia has actually gone up. It has gone up and that reflects where the heritage companies . . .
MR. EPSTEIN: I would have to say I would like to see the breakdown of where this . . .
MR. CONNORS: Absolutely, I would be delighted to provide you with that information.
MR. EPSTEIN: I think is quite an important question.
MR. CONNORS: Yes.
MR. EPSTEIN: For a company that has suggested quite regularly in its literature that it has a virtual headquarters and that there's a bit of a movement around, depending on what kind of particular enterprise we're looking at, the indicators I have are that there has been a real shift to New Brunswick and I have to tell you that people here are worried.
MR. CONNORS: I appreciate that people say things.
MR. EPSTEIN: People here are worried. I'm not talking about somebody who doesn't know anything, I'm talking about people who are your own middle managers, engineers, they've come to us and they have said that they are worried about this. They have given me examples of shifts inside the company. They are concerned that Nova Scotia - which has represented, now I believe continues to represent, a diverse marketplace, a larger
population, one that has a lot more corporate customers, one that has international airports and ports and a lot of potential and is a real hub - is for some reason not seen by the company as being the place where there ought to be the lead, including the management lead of the company.
MR. CONNORS: In a time of change it is quite natural that everybody worries. I mean I understand that. I started my career in Newfoundland and, as I indicated to you, xwave actually started as a result of an initiative. So, for example, we're building a new facility, opening a new facility here for xwave, so I'm sure there are people in Newfoundland who worry, oh, does that mean that xwave is moving to Nova Scotia now and we're going to lose control of that. We're not operating in an unusual environment in this day and age, you know, you referred to the virtual head office, it is called distributed management. I mean that's exactly the environment in which business operates today. We have managers who are located in Austral Asia. We have managers who are located in the U.K., in Ireland. We have managers who are located throughout Atlantic Canada, but the facts are that the proportion of management in Nova Scotia has actually gone up. It has actually gone up and I will share that information.
MR. CHAIRMAN: Mr. Epstein, unfortunately, some questions necessitate longer answers than others and the clock keeps ticking.
MR. CONNORS: I appreciate that and please do, sir, cut me off if I . . .
MR. CHAIRMAN: Thank you. Mr. Carey.
MR. JON CAREY: Mr. Chairman, in I guess non-technical, if it's possible, or lay terms, could you explain why it does cost more to serve rural Nova Scotia? For example, I live in a small village and we have one of your facilities with large computer banks and so on in our community when it was MTT. Our people don't understand why there should be a price increase when this facility has been there. There's just a lack of understanding for the average person, a non-technical person like myself.
[10:15 a.m.]
MR. HOWARD: Probably to do justice, what I might suggest is that I forward along to the committee exactly what goes into the definition of costs from the CRTC. I can share that with you; that's on the public record. Just off the top of my head, built into those determinations of costs are the physical infrastructure itself, depreciation over time, which would be consistent between urban and rural anyway, but then they also factor in your variable costs, which would be things like maintenance, ongoing personnel response time to service issues, the number of employees. Those types of things all get factored in, but as I said, to do more justice to it, I think it would be best to forward out to you copies of what actually goes into that determinant of costs. Basically, what's happened is the CRTC has now
gone through the process of defining what, exactly, is a high-cost serving area and then gone to the next step of telling us how to determine those costs and then subsequently said you can't price your services below those costs as defined. So that's the world we're living in.
MR. CAREY: In your presentation, there was one point I think you had where you wanted - I think it said something about improving or better personalizing service. In my past life, when I had a business where whether we were successful daily or not depended on whether our phone service worked or not, when it would go down it was not unusual to be told you couldn't get a technician for three days. I guess my question would be, in rural Nova Scotia do you have less technicians than MTT used to have to service the people or not?
MR. HOWARD: I would probably have to go back and do a little bit more analysis for you and do a breakdown of employees. It varies by region and it tends to line up with the amount of business that's in that region. For instance, we've seen growths in business in the small- and medium-sized sector in the industrial Cape Breton area, so we've had to staff up our level of service representatives in that area whereas in other areas of the province where there has been some more decline from a business perspective in terms of managing our staff, we may well have had fewer people in those regions. But I can share with that . . .
MR. CAREY: For example, Kings County, which is part of where I represent, is the second-fastest growing area in the province so it doesn't make sense to me that we would have less technicians and so on because obviously, business should be growing, I would think.
The other thing, from the personalized service, when you call in to get repairs or for whatever reason - did you ever try to get any of these people? You have a nice recording and you do support local talent in the Maritimes because I have heard every song that Anne Murray and Rita MacNeil ever sang. I don't mean to be nasty, but if you stay on there for 20 minutes, you hear a lot of music. You're talking about giving personalized service and we can't even get a person to talk to in what I would consider a reasonable time.
MR. CONNORS: As I indicated, we can measure our service standards by any specific example that you would like to review with us. I would be glad to take some time with you and really address further, as Mike indicates, what is the issue at hand here. Again, Aliant is the company that's putting forward service standards as part of this proposal, and as a customer and certainly as a legislator and an interested person in the public, you get to hold our feet to the fire on that. We would like to see all companies submit themselves to such service standards going forward. They're quite stringent.
I hear your concern and we understand what you're saying so we'd be delighted to talk about those specific examples. No doubt, with any large business, it's always possible to find some examples throughout. It doesn't make them any less worrisome. A company that's interested in customer service has to look at everything, no matter how great or how small
it might be as an example of service weakness, and address that and shore it up. And that's what we will do.
MR. CAREY: Last question, Mr. Chairman. I guess that's what bothers me the most, though; here in rural Nova Scotia, we do not have a choice really. Yet if the service is not improved, what can we do about it? I can't change, and I guess what you're saying here is you had to provide the network to competitors at a discounted rate of up to 70 per cent, is the request. Is that the CRTC that's mandating that, that you give 70 per cent?
MR. HOWARD: No, there's a discount in place today, and as a part of this process, have asked for approximately a 70 per cent discount.
MR. CONNORS: They've asked for a further, deeper discount.
MR. CAREY: Your competition?
MR. HOWARD: Yes.
MR. CONNORS: Yes.
MR. CAREY: Who makes the decision whether you give them a 70 per cent discount or not?
MR. HOWARD: The CRTC.
MR. CAREY: Surely, that seems unreasonable, but . . .
MR. HOWARD: Again, it goes back to one of the questions that I have on one of the slides there, at the end of the day, what model are we going to come up with that will enable us to maintain and sustain rural investment in telecommunications infrastructure? That's what this whole process has been about.
MR. CHAIRMAN: Thank you, Mr. Carey. Mr. Corbett.
MR. FRANK CORBETT: Mr. Chairman, I'm going to try to keep much of my questions today concerning the direct telephone company, not the ancillary type of more IT-type business that's going on, because I think the reason we are here today is to probably talk more about your direct residential telephone service. I realize you are in a competitive market, and that competitive market was certainly welcomed by you or foisted on you by a federal Tory Government in 1992, I think some of the evidence you produced here today wasn't a very well thought-out plan because they factored in a long distance service when this whole thing became a deregulated sector of how it was going to impact on people.
We see some people today complaining about services to rural Nova Scotia. I think when the federal government deregulated the service that wasn't foremost in their mind, how this was going to impact on rural residential subscribers, but really to make itself look well in the political eye.
My colleague, Mr. Epstein, talked about the amount of employees in Aliant Telecom here in Nova Scotia. I want to talk more particularly about the amount of employees you have on the Island of Cape Breton. I realize you said that you did some staffing up. Can you give me a relation of how many people were working for MTT in Cape Breton at the time of deregulation and how many work there today?
MR. CONNORS: In 1992?
MR. CORBETT: Yes.
MR. HOWARD: I can go back and search that for you. I don't have that right on hand.
MR. CORBETT: But it would be considerably less people working there today.
MR. HOWARD: I'm not sure, because to be honest with you it will fluctuate. We've had changes in the past. I will have to look for you.
MR. CORBETT: Certainly you have no operator service there anymore.
MR. HOWARD: We had talked before, and I had sent out some information on that issue. With our operators, yes we have centralized our operator services in New Glasgow, for Nova Scotia. At the same time, the majority of those staff were redeployed in other areas within industrial Cape Breton. Where there is a growth in high-speed Internet service and the number of subscribers that we need for high-speed Internet service, we've redeployed some of those people who were taking calls as operators into service representative roles to handle calls coming in for high-speed Internet. I will do that task that you've asked me to do, to provide you with a little bit more information but I can't say definitively whether it has gone up or down.
MR. CORBETT: Not to go too far down that road of the DSL or whatever, because there is also, internationally, companies are backing away from their DSL service because of cost recovery. Any of the large providers, especially in the United States right now are saying look, they're rethinking the whole aspect of DSL.
MR. CONNORS: I would say that they're rethinking the aspect of a number of technologies, that is what I referred to earlier. With regard to the instability in the equipment platforms and the equipment pipelines, there is a lot of evaluation and re-evaluation of
technologies and relative costs of installation of those technologies and the recovery opportunity on those. The Internet is really still very much a market theory looking for a profitable model. It really is.
MR. CORBETT: I think most of the big players in North America are saying we're rethinking our investment, or what continued participation in DSL is going to be. Getting back, I have, from to time, spoken to your maintenance people, who are saying that in rural areas, if you consider the level of maintenance that was done 10 years ago compared to the level of ongoing maintenance that is done today on your two-copper leads, it is basically nonexistent. Now you are wanting to go in those same areas and look for a rate increase. I find that offensive. Sure, you're improving, but your own people are telling us that overall maintenance of lines, your two-copper leads, isn't there. How do you answer that question?
MR. CONNORS: Again, I just go to the service standards. We do report to the CRTC on a regular basis with regard to service provisioning and service maintenance. The standards are set. As I indicated, as part of this process we have submitted new service standards for ourselves. Others have not done so. I think that when I look throughout the region, when I look throughout the network, when I look throughout all of the activity that we are undertaking, I would place our service standards up there with best in class. I do know that every industry is going to have some problems; every industry is going to be challenged. But I would say that any specific reference to any specific problem, we would be delighted to know about it with regard to the overall service indicators. These are reviewed with the CRTC, and we have good performance on our service.
MR. CORBETT: I guess it depends on what you compare it to. You may be first in class but the class may be a lousy class. That's what's going on here. The fact of the matter is we can drive around the city, we can drive out to Stewiacke or to Mabou or wherever, and we will see sleeves over lines that are an indication to maintenance people that that line has to have a repair effected on it. You will see these sleeves on there for six to eight months. I guess what I'm saying is that when talking to the workers, not the boardroom but the workers, they are saying that there are not enough of us around; that is why it's taking us six months to do a test on that line to see what repairs have to be effected. I'm saying I think there is more than just anecdotal evidence out there that says - or if one or two of the members here want to tell you hard luck stories, the reality is just drive around and you will see these things.
That is the real problem, especially in rural areas, in the areas where you want to go out and look for rate increases. Their biggest problem is regular, ongoing maintenance, the reliability of the system. I noticed in one of your charts, particularly, this provincial government is taxing 911. So there has to be all kinds of problems.
MR. CONNORS: To the extent that you're talking about sustaining investment and capital investment and all those dollars that are required, including the employment costs, to the extent that we're talking about that, we're talking about the same issue. We are equally interested in the ability to sustain investment in rural areas. It's really the same issue. Our proposal attempts to address, within the framework of a very lengthy cost study that was undertaken and set the apportionment of cost accordingly across the number of bands, if you will. We are interested in the same thing. We're interested in sustaining investment in rural Atlantic Canada. We share your interest in sustaining investment.
MR. CORBETT: That goes right up the line of, "I feel your pain." I take what you're saying and hope you're sincere about it, but I am telling you that's not what we're hearing from your front-line workers and your customers. It may be a good corporate model, but I think you should go back and re-evaluate because it's not happening on ground zero, if you will. I could probably go back and talk to people about the infamous calls back to the phone company trying to get repairs effected. All of us around here could probably tell you horror stories from the last general election when we tried to get phones hooked up in our headquarters, with delays. Some of them were three weeks into an election campaign before they got telephone service hooked up to their offices. From a very personal way, we all know how important that can be to your campaign. These things just aren't happening. When these employees come into our office, that's what they are telling us, that we're cut to the bone and
there aren't the bodies to go out there and do that.
[10:30 a.m.]
MR. CHAIRMAN: Thank you Mr. Corbett. Mr. Downe, perhaps we will shorten the time allocations if we could in the spirit of co-operation and fairness?
MR. DOWNE: One of the frustrations obviously for all Nova Scotians was the fact that you had to go all the way to Hull to talk to you about the increase or see the process underway. That bothered a lot of people in Nova Scotia, especially in rural Nova Scotia, but I guess in all fairness, is that part of the CRTC's decision or could you have done it through a URB process down here and link into Hull? Because Nova Scotians wanted to be there and have a voice.
MR. CONNORS: As Mike indicated, this was obviously part of a national process and the view that was taken through the national process clearly was that this was the method that they would follow. We did go on record indicating we weren't opposed to hearings in this area and obviously, Mr. Downe, as we get to any future rate applications that might result from this or that might be in any different form, those hearings I would expect would take place in the local areas and we would fully expect full engagement. I think it's a good thing to have the legislators and the committees and so on fully engaged in this whole industry. I think there's a lot of questions to come forward.
MR. DOWNE: The issue of cell phone, as touched on by my colleague; analog, digital, high speed Internet, services in rural Nova Scotia that are wanted throughout all Nova Scotia. What are your plans with regard to - where do the rural people, where does rural Nova Scotia have a voice here with regard to when those services will be brought to the rural areas that not only get a rate increase if this goes through the CRTC, but are going to get a double whammy in the fact that they're going to be a CPI indexing tied to it, in fact, all Nova Scotians are going to pay that. In fact, I guess all of Atlantic Canada is going to be paying that, come to think of it. Everybody in Atlantic Canada is going to be subject to the indexation issue. How do some of the rural people and MLAs who are here have input? I have a cell area where I have construction companies, and people who work at community services have no cell access, not whether it's analog or digital, they don't even have cell access. When do those areas get done and how does a rural voice be heard at the corporate table?
MR. HOWARD: It would be best maybe to provide you with a little bit of an example of an activity that we've been engaged with over the last year and that has to do with the national broadband task force. Basically, what the federal government and the provincial governments, as participants, and also the carriers and our competitors out there have said, we also recognize the challenge of how do we get high speed Internet services out to rural constituencies so there is no digital divide on the next wave of technology? Over the course of the discussions, it basically stated that on their own nickel, the private sector would probably get to between 70 and 75 per cent of the consumers out there; they would spend their own money to get to that level of coverage. Well then how do we encourage investment on the remaining 25 per cent of the population out there? One of the recommendations - and we were participating in this whole task force - that came forward and has gone forward to the federal government is a proposal to address some of that, and it takes a variety of different forms where there's either community leadership or community aggregation models or there is subsidies to a variety of different carriers or private sector partners out there. That's an example of how those leading edge technologies can possibly be achieved.
MR. DOWNE: My final question, a phone service in rural Nova Scotia is essential service, just simply because of the geographics and where we live, it's absolute. You need a phone, without question. From 911 service to whatever, you need a phone, it's an essential service.
Your application to the CRTC for an increase of $29.95 to those rural areas in the year 2005 as well as the indexing component of Consumer Price Index and, if that's approved, when will that take place? When will those increases take effect not only on Halifax and areas such as Halifax, but also the double whammy that is going to be hit on rural Nova Scotia?
MR. CONNORS: Well, I think our proposal envisions those increases taking place over the next several years, going through 2005. That is the period of time that we are talking about, but any individual rate change, any specific component of that proposal, would require a separate rate hearing and be subject to all of the review and all of the terms and conditions under CRTC regulations.
MR. DOWNE: So it could go into effect immediately, whenever CRTC brings their . . .
MR. CONNORS: Well, I think that we have an expectation that it will probably take some time for the CRTC to review all of the information that will have been sent before.
MR. DOWNE: Sooner than later, it is coming.
MR. CONNORS: It will come at some point, but I would expect a decision somewhere in the March-May-June time frame, somewhere around there, the initial decision as to which model they will go forward with. Any subsequent action would have to follow on that.
MR. DOWNE: Thank you.
MR. CHAIRMAN: Thank you, Mr. Downe. I guess another aspect of this concern about rural rates reflecting some type of cost recovery or the cost of delivering service to those areas is the fact that MTT/Aliant Telecom enjoys a preferential rate in terms of partnering with Nova Scotia Power and using their poles. Eastlink, for example, is advertising hot, hot, hot Internet, so fast it will bring tears to your eyes, and vis-à-vis, they claim that MTT, on the phone lines, cannot provide high-speed Internet to folks outside of the urban area. In a lot of communities in rural Nova Scotia, we don't have high-speed Internet, quite frankly. There are phone tie-ups; there is a breakdown in speed, if you will, because of the infrastructure that is being employed by MTT.
Recently, a public notification indicated that previous customers with Nova Scotia Power, through no fault of yours, will enjoy that preferential rate. Yet Eastlink and some of the smaller cable companies are going to really be behind the eight ball. I guess the point I am making is that your infrastructure, in certain areas, perhaps a lot of rural Nova Scotia, is essentially a partnership with Nova Scotia Power. You are going to continue, as I understand it, by way of that public notification, to enjoy the rate that you are paying per pole, where the smaller companies will not. So in my mind you have a competitive advantage in providing phone service to rural Nova Scotia.
Just to put a face on it, Mr. Downe raised concerns about cellular service in his constituency. In the Stewiacke valleys, right through to Upper Stewiacke, and that is a farming community, and the Musquodoboit Valley, Goffs, Oldham, in back of the Halifax
International Airport, cellular service is poor, if non-existent. Some of the stakeholders in those particular areas with MTT, general managers, have been discussing cellular service and some of us are wondering, quite frankly, if MTT/Aliant is of the belief that cost recovery should be reflected in the rates, then how come no distinction is made for folks that have cellular service or cell phones when in fact they have to get to an area where analog or digital service is provided? There is no distinction in the basic rate. Nobody with MTT will tell a customer voluntarily when they take out a package for a cell phone that oh, well, where you reside there is no service.
I know a young lady in Meagher's Grant who recently purchased a cell phone and a plan through MTT Mobility and broke down on the Old Guysborough Road, just barely outside of the Dollar Lake Provincial Park. There was no cell service, none whatsoever, but she is paying the same rate as people in Halifax are for that basic service. So if you believe in the principle of rates truly reflecting the cost of the service that is being provided by the company, then I would think that the company should be of the same philosophy, consistent. So I see an inconsistency there.
MR. CONNORS: There are a number of things in there. Mike, do you want to start on some of the specifics?
MR. HOWARD: Just a couple of, I guess, more observations than direct responses. Any time that a new cell package is distributed, with that comes coverage maps as part of the documentation that comes with it. Now, obviously, there may be instances in those coverage maps where you have a situation, as you have articulated, where she may fall on the line or fall outside of a coverage area. That probably should have been more clearly articulated in terms of more of a discussion with the customer in terms of where they live and where they are typically going to be using the service. Perhaps that is an opportunity to engage in more of a personalized dialogue, to try and ascertain what the needs are of the customer.
But to the bigger point, it is a bit of a mixed message or a mixed question in that we are being asked to extend the coverage of high-speed services and wireless services. At the same time, we are being challenged not to follow competitive market forces in terms of the pricing of those services. Again, I keep going back to this issue that collectively there has to be a way of addressing this sustainability and ongoing investment in rural and remote areas. If there's a negative business case or a business case that has a very long life in terms of gaining an adequate return on investment in a very rural and remote area, that puts tremendous challenges on a private sector company to make that investment and that's the dilemma that we're faced with today in all of our services.
MR. CHAIRMAN: I guess my comment that MTT, because of your partnership - and that's great, I certainly support partnerships - will continue to enjoy, if you will, or carry on with the same rate in terms of charges per pole. Recently Nova Scotia Power, by way of a public notification, has applied for a rate increase for cable companies to use their poles or
infrastructure, but it was referenced in the notification that companies with agreements or arrangements previous, i.e., MTT, wouldn't be impacted by the rate increase. I'm just wondering how widely known that fact is and whether the CRTC would be aware of that - I would think probably they would be - that you enjoy and use some of Nova Scotia Power's infrastructure?
MR. CONNORS: I would be confident that the CRTC is aware of all of our agreements with companies throughout this region, including Nova Scotia Power, and it doesn't change the fundamental fact of the cost analysis or the cost of service delivery to various areas. I mean if you're not up to the starting line, you're not up to the starting line and any opportunity you might get with a partner, that still doesn't get you up to the starting line in terms of covering your costs; it doesn't change the fundamental facts. So I would think that the CRTC would be very aware of all of the agreements and the issue still remains the same, not only in Atlantic Canada, but throughout all of Canada. It really is how do we create a model in which you enable competition and improve competition in local service in all areas and at the same time address the costs of service delivery, which is differentiated in certain areas as compared with others. That's really the issue that we're trying to deal with here with the CRTC.
MR. CHAIRMAN: Yes. Just by way of final comment, I would say that the starting line has pretty much remained consistent in terms of the poles, one of the major components of your infrastructure. For many of the cable companies the starting line has moved, the bar has raised, and can you tell me, are there still . . .
MR. CONNORS: There is really nothing that is happening today that we in our industry did not forecast as far back as when I joined the company in 1977, when this whole issue was first discussed. There really isn't anything that is happening today that we did not ourselves forecast on a going-forward basis. We recognized that competition would naturally seek to have the most favourable opportunity so they would compete in rural areas, or in urban areas rather, and that the incumbent carriers were going to be in a situation in which the cost of service delivery was going to have to be addressed.
Everything that is happening today had been forecasted long ago. It is happening in the United States, it is happening in Canada, and it is because Canada and the United States have evolved their telecommunications systems a little differently than many other jurisdictions throughout the world and that is, as I indicated, we started with a process whereby we went for universal service and in order to provide universal service we created a series of cross-subsidies within the industry itself. That model started to change in 1992 in Canada. You start to change one aspect of the model, you end up changing all aspects of the model; that's ultimately what's going on here.
[10:45 a.m.]
MR. CHAIRMAN: Mr. Connors, are there still some party lines in the province?
MR. CONNORS: I would say very few, but . . .
MR. HOWARD: As part of that 1998 campaign to make us a 100 per cent digital province, that was one of the targeted areas, the party lines and . . .
MR. CHAIRMAN: Are there still party lines in Nova Scotia that could possibly be impacted by this rate increase?
MR. HOWARD: I don't want to be caught too much on the line here, but I am pretty sure that they've all gone, in terms of party lines. But I will validate that for you. I think as part of that 1998 campaign that they were taken out of service.
MR. CONNORS: Mr. Chairman, I do recall during one set of discussions that involved poverty groups and so on there was a desire by certain groups to maintain party lines. In their view, that was a means of providing lower-cost service. As Mike indicated, I would be fairly certain they've been eliminated in Nova Scotia, but the regulator has posited party line availability as one means of providing low-cost access. From a regulatory model point of view and an industry standard point of view, there's some discussion as to whether or not party lines are a viable service. From a low-cost service point of view, it's less cost.
MR. CHAIRMAN: But this rate proposal would impact party line users as well, if there are party line users. I guess we don't know. I will have to find out.
MR. CONNORS: If there are party line users. In theory, something can affect everything. If in fact that thing does not exist, it's quite another thing, isn't it?
MR. BOUDREAU: Contracting out, isn't it correct that your company does quite a bit more contracting out today than it did in the early 1990s?
MR. CONNORS: I would say contracting out is a viable management tool that's used by companies. Aliant Telecom is focused on our permanent employees, but it must use the management tools that are available to it to reasonably contain costs to deliver service to customers.
MR. BOUDREAU: Could you indicate what type of services you contract out?
MR. CONNORS: No, I think that we would look at the situation at hand that relates to the cost of service delivery, that relates to the cost of operating the business, and if contracting out appears to be a viable option, then we would investigate that.
MR. BOUDREAU: Is contracting out affecting employee numbers at your company?
MR. CONNORS: No, I don't think so.
MR. BOUDREAU: Employment numbers and the number of employees?
MR. CONNORS: No. As I indicated, our employee numbers are actually growing.
MR. BOUDREAU: But isn't it true that you just recently laid off a number of people in the industry in Nova Scotia?
MR. CONNORS: Yes, we did have a layoff of some of our employees in Nova Scotia, a relatively small number. I am trying to think if it's about 23 or so, 25, something of that nature. It was a number around that number.
MR. HOWARD: It was 48 in Nova Scotia and 20 of those actually received early retirement packages.
MR. CONNORS: So it would have been 28.
MR. BOUDREAU: Are any new layoffs anticipated in the future?
MR. CONNORS: What our president has indicated is, looking at our global business, looking ahead to 2002, looking ahead at the fact that the economy unfortunately does appear to be weakening, we do anticipate the need to take out another 300 positions. If you look at the fact that our telecom employment is about 60 per cent to 65 per cent of our employment, you could reasonably assume that 200, 220 of those would be in the telecom industry. He has also indicated that we will look at the variety of means available to us. That is to say that we will look at temporary positions; we will look at retirement options. The first people that we spoke to about all of this were, of course, our union executive, and we will operate within the framework of our collective agreement.
MR. BOUDREAU: Do you feel that contracting out is affecting the service you're providing the rural customers?
MR. CONNORS: No, I think that we would evaluate the requirement for contracting out in any part of our business and the first thing that has to be at hand is maintenance of service quality.
MR. BOUDREAU: Just following up on what my colleague for Cape Breton Centre indicated, the equipment last fall when there was flooding, heavy rain in the Cape Breton area, it was days before I could return calls. I was calling 794 numbers, which is the Northside exchange and I was getting Louisbourg, Port Morien, Ben Eoin - in fact, I even got Yarmouth
one day. When I called the business centre, they indicated very clearly that it was because of the older equipment and that it was getting wet.
If the people in the business centre have knowledge of these equipment failures, then I am certain that top management in the company must be aware of this situation.
MR. CONNORS: Yes, and we're interested in sustaining investment that addresses any equipment failures. I mean we do pay attention to the performance of our network and the performance of our equipment, and we're interested in sustaining investment in those areas.
MR. BOUDREAU: Just one more, Mr. Chairman, if I may. In reply to contracting out. Just recently, two weeks ago - I have two phone lines in my home - both phones went out on the same day. I was told it was vandalism. It took nine days for one line to be repaired, and 11 days for the other. When I received my bill, Mr. Chairman, I didn't see those days removed from the bill. Those bills came complete with the days that my phone service was cut. That's a minor thing for me, but for a senior, living on a fixed income in a rural area, it is a major issue. Do you have any plans to deal with that type of difficulty with the billing service?
MR. CONNORS: Yes, we would. We do have procedures and I will inquire further about your own bill, Mr. Boudreau. Absolutely.
MR. BOUDREAU: I'm not complaining about my bill.
MR. CONNORS: Any service outage that lasts past a certain period of time . . .
MR. BOUDREAU: I'm concerned about the bills in particular in rural areas and people on fixed incomes, that this is a regular occurrence with your company.
MR. CONNORS: As I indicated, we look at our service standards constantly and we do review those with the CRTC, and we are interested in sustaining investment that continues to improve service.
MR. HOWARD: And as a part of that service coverage there are provisions within our regulatory environment that says if you are out of service for over a certain period of time you are entitled to recourse. and that is every citizen, not just yourself.
MR. BOUDREAU: Just as a comment, Mr. Chairman. There is a maintenance service centre directly across from my constituency office in Sydney. I can assure you it's not your employees; your employees are very dedicated and they work very hard. They're understaffed, particularly for the service departments, and I would suggest that the management team should look at this because it creates a great deal of stress for your employees, because they
want to get the job done. The ones I know - and I know a lot of linemen and maintenance people - they want to be the best that they can possibly be, but they feel handicapped because the support team is not there, and that is an issue I would suggest that you take to your management team and provide the ground support necessary to your employees so they can provide the service that rural Nova Scotia requires.
MR. CONNORS: Thank you very much.
MR. CHAIRMAN: Are there any other members who - Mr. Epstein yes, I'm sorry . . .
MR. EPSTEIN: A couple of points. In the material we were given, we were given the Nova Scotia provincial Statute called the Rural Telephone Act. There was some suggestion in it - and in fact I think I heard it said here as well - that our local URB might have some jurisdiction, but I have to say it was not my understanding that there's any residual provincial jurisdiction anymore over telecommunications. Is there any at all?
MR. CONNORS: Not to my knowledge.
MR. EPSTEIN: No. So it's all really federal; I thought that had been established quite awhile ago.
MR. CONNORS: I think several years ago, yes. I believe, my memory says 1996, 1998, somewhere in that time frame the federal regulator took responsibility for all telecommunications in Canada.
MR. EPSTEIN: Yes, so that Act is probably essentially spent, I guess, at this point.
MR. CONNORS: I believe so.
MR. EPSTEIN: Okay. So the Nova Scotia Government I believe still does business with you, and I would assume from the size of its activities must generally rate as one of your major customers. Would that be a fair statement?
MR. CONNORS: I would say that would be a fair statement.
MR. EPSTEIN: Okay, fair enough. So that would mean that if a provincial government here, or our provincial government, had any concerns about anything to do with your operations, its options would either be to go talk to the CRTC as your regulator, or on a business basis as one of your customers, go talk to you directly. That's it, is it?
MR. CONNORS: All customers have that option, absolutely.
MR. EPSTEIN: Fine. Good to know. Thank you.
MR. HOWARD: That has been actually a long-standing relationship and that has worked, in my opinion, quite well. If you look at the ability, as I said, referenced in this document, the ability to roll out connectivity to all of our schools, libraries, and museums, that was done having government as an anchor tenant on our network. In doing that we have deployed technologies into all those communities that will, hopefully, alleviate some of those costs as we try to turn up some of those high-speed services. So without a doubt, and I said it from a policy perspective, government as a model user has a tremendous role to play in terms of the fostering and the development of the information, communications, and technology sector. We value that business and we have done some good things together under various regimes that have been in power. So we hope that continues as we go forward.
I get a sense that we are wrapping up, so from a closing perspective, and Harry may want to put a closing vote on it as well, we hope that we were able to share a little bit of contextual information and answer a little bit of your questions. It is obvious that there are still concerns with the submission portion of our discussion, but we do hope that there is an appreciation of the value-add and the contribution of Aliant and MTT, from the Nova Scotia perspective, to this economy and to this marketplace. We continue to want to be involved in the growth of the whole exciting sector around the knowledge economy and the knowledge sector.
We would also be very interested in returning at another opportunity in the future to talk more about the opportunities that are out there in terms of growth of this sector because we think there is tremendous potential for our area and we are excited about the future for our region. Thank you, Mr. Chairman.
MR. CHAIRMAN: Thank you, Mr. Howard.
MR. CONNORS: Mike said it all very eloquently and I just add that Aliant is interested in the growth of this province and this region. We do think that there are lots of opportunities ahead for us in this industry. We are facing a few bumps right now, but we remain confident in the long term and we would like to work with the legislators in this province in order to affect that.
MR. CHAIRMAN: Thank you, and I would like to add, in reference to a concern Mr. Boudreau raised about customer service interruption, that the folks I mentioned in Musquodoboit and Stewiacke did receive an adjustment on their bill. I want to be fair. They did receive an adjustment to reflect that particular service disruption.
I would like to, on behalf of the committee, thank you, gentlemen, for coming in this morning and being so forthright and patient with us. I think we are all certainly better informed as a result. So thank you.
Committee members, our next hearing dates are November 20th, we have the Christmas Tree Council coming in, and December 4th we have the Cape Breton Growth Fund. Thank you. I would entertain a motion to adjourn.
SOME HON. MEMBERS: So moved.
[The committee adjourned at 10:57 a.m.]
